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KPMG’s Week in Tax: 6 - 10 August 2018

KPMG’s Week in Tax: 6 - 10 August 2018

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Americas

Canada: The Canada Revenue Agency announced the prescribed income tax interest rates remain unchanged, while the prescribed interest rate used to determine interest income inclusion from a pertinent loan or indebtedness (PLOI) will increase for the fourth quarter of 2018.

Asia Pacific

Malaysia: A sales and service tax regime—with a proposed effective date of 1 September 2018—would repeal the existing goods and services tax (GST) system. There would also be changes to the customs rules because of the new sales and service tax regime.

Asia Pacific: A KPMG report provides summaries of the tax systems of the following countries and jurisdictions: Australia, China, India, Japan, Macau (SAR), Malaysia, Mongolia, Singapore, and South Korea.

Australia: In-vehicle tracking technology can help with the identification and calculation of car parking fringe benefits as part of the fringe benefits tax (FBT) compliance.

Japan: EU mandatory disclosure rules may have an impact on Japanese entities.

India: The Delhi Bench of the Income-tax Appellate Tribunal held that the minimum alternate tax (MAT) credit is allowed inclusive of surcharge and education “cess” (the surcharge levy imposed for various governmental functions including education). The amount of tax includes both components of tax and surcharge.

India: The Central Board of Indirect Taxes and Customs issued GST guidance concerning: (1) supplies received from an unregistered supplier; and (2) a special procedure for completing GST migration.

India: The High Court of Delhi dismissed an appeal on the simultaneous levy of penalties, with the court observing that advance knowledge of the tax liability was a factor to consider in determining the penalty liability.

India: A tribunal held that there was no installation permanent establishment (PE) under the India-Cyprus income tax treaty given the 12-month threshold period was not met. The tribunal observed that preparatory work relating to a contract cannot be counted on calculating the threshold period.

India: The Constitutional Bench (five-judge bench) of the Supreme Court held that: (1) an exemption from tax guidance is to be interpreted strictly and the burden to prove its applicability is on the taxpayer; (2) any ambiguity in the exemption guidance must be interpreted in favour of the tax department; and (3) prior decisions to the contrary are overturned.

India: The Gujarat High Court held that year-end provisions for expenses are not to be disallowed when there was non-withholding (non-deduction) of tax at source because the expense provisions were deemed to be contingent in nature.

India: The Karnataka High Court remanded a case concerning share buy-backs and with instructions to consider the fair market value of shares bought back by the taxpayer from its holding company and the applicability of deemed dividend provisions.

India: The Authority for Advance Ruling Maharashtra (AAR) ruled that, for purposes of determining the GST liability, discounts offered after goods are sold must be established based the terms of the agreement or before the supply is made. The discount must be based on certain criteria agreed to by the supplier and the customer and must be set forth in the agreement.

Europe

France: An Advocate General of the Court of Justice of the European Union (CJEU) concluded that the French withholding tax rules for dividends paid by French companies to non-resident loss-making companies are contrary to standards under EU law (the free movement of capital and the freedom of establishment).

Belgium: Relief from certain penalties related to value added tax (VAT) may be available under a new VAT penalty policy.

Cyprus: The tax treatment of capital gains, “carried interest” of individuals working in the funds industry, and other funds sector measures was revised.

Transfer Pricing

United States: The U.S. Court of Appeals for the Ninth Circuit announced the withdrawal of a July 2018 decision. The decision concerned an appeal from the U.S. Tax Court which held as invalid certain U.S. Treasury regulations with respect to employee stock compensation and cost-sharing arrangements. A new panel of the appeals court will now hear the appeal.

Trade & Customs

China: New customs tariffs on certain U.S. products that are imported into China will be effective 23 August 2018. These are in response to the U.S. announcement on 7 August 2018 of the second round of the 25% additional customs tariff on certain imports of Chinese products into the United States.

NAFTA: A KPMG report provides an update on NAFTA re-negotiations.

EU: The EU’s updated “blocking statute”—effective 7 August 2018—aims to sustain trade and economic relations between the EU and Iran which were normalised when nuclear-related sanctions were lifted as a result of the Joint Comprehensive Plan of Action (JCPOA).

India: Retaliatory import duties have been delayed until 18 September 2018 for certain U.S. products.

United States: The Office of the United States Trade Representative (USTR) released a list of approximately $16 billion worth of imports from China that will be subject to a 25% additional tariff as part of the U.S. response under “Section 301” proceedings.

United States: A final rule from the Bureau of Industry and Security (BIS) of the U.S. Commerce Department amends the Export Administration Regulations (EAR) and eases restrictions on certain defense exports to India.

United States: The U.S. Court of Appeals for the Federal Circuit affirmed a decision of the trade court concerning the proper tariff classification of imported candles that generate light using battery-operated LEDs.

United States: The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced guidance concerning an executive order reimposing sanctions with respect to Iran.

United States

Proposed regulations and related IRS guidance concern section 199A—a provision enacted under the new U.S. tax law that allows certain owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20% of their qualified business income.

Final regulations concern the designation and authority of a partnership’s representative under the “centralized partnership audit regime” and the election into the centralized partnership audit regime as enacted in 2015.

OMB’s Office of Information and Regulatory Affairs (OIRA) updated the list of regulatory projects subject to OIRA review. New to this list are proposed regulations concerning state and local tax (SALT) credits and charitable contributions.

The U.S. Tax Court held that a withholding tax liability under section 1446 was a partnership item and, as such, to be included in a partnership-level proceeding under the TEFRA partnership audit provisions.

The U.S. Tax Court held for the taxpayer with respect to the repatriation in 2006 of $356.8 million from European affiliates. The taxpayer used a plan that combined intercompany debt with a return-of-capital distribution.

Rev. Proc. 2018-40 sets forth the procedures that eligible small business taxpayers may use to obtain automatic consent of the IRS Commissioner to change their methods of accounting to reflect certain changes made by the new U.S. tax law.

U.S. states—including Kentucky, Michigan, Nebraska, South Dakota, and Washington State—continue to respond to the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. concerning the sales tax implications of remote or online sales.

The Alabama Department of Revenue issued a report addressing how various aspects of the new federal tax law interact with the state’s individual, corporate, and financial institution tax laws.

The Vermont Department of Taxes issued guidance concerning how different types of taxpayers must report income under IRC section 965 (that is, the new federal tax law provision imposing a transition tax on the deemed mandatory repatriation of foreign subsidiary income).

Cooperatives

The IRS announced that separate guidance will be issued for cooperatives concerning section 199A—a provision enacted under the new tax law that allows certain owners of sole proprietorships, partnerships, trusts, and S corporations to deduct 20% of their qualified business income.

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